Crypto Valley, digital currencies and Zug's reputation

It was only recently reported how there was a growing tendency to regard the activities of some of the firms based in Crypto Valley as tarnishing the canton’s reputation, rather than enhancing it, as hoped. Last Saturday the Neue Zürcher Zeitung (NZZ), the renowned national daily newspaper, devoted a whole page (half the page text, the rest made up of photographs) in its “Switzerland” section to the growing discontent among some Zug politicians, though not all, in relation to the activities of some companies operating in Crypto Valley.

The journalist at NZZ (what follows is a much abridged version) mentioned what an unsettling time it had been of late for promotors of crypto-currencies to see their value fall so much. Then the Zurich Cantonal Police were involved in investigations relating to two investors in the “Iota” digital currency who had been tricked out of CHF 1 million.

It was back in May 2016 that the city of Zug became the first ever “state” authority to accept Bitcoin as payment, praising the innovation involved, and resulting in press coverage around the world. All this was tantamount to saying that all was well and there was nothing to fear.

The canton has also basked in the fame as a result of so many firms engaged in blockchain activity setting up operations here since 2013, one high-point being a visit to Zug last August by federal councillor Johann Schneider-Ammann, who heads the Federal Department of Economic Affairs, Education and Research, and who said at the time that “we should grasp opportunities (offered by the new technology) and here in Zug you are going about this fantastically. Keep this up.”

While all this was music to the city’s councillors’ ears, there was less ecstasy expressed about “crypto fever” in the neighbouring municipality of Baar, though some Fintech firms have also been set up there. Speaking in his capacity as mayor of the 25,000-strong community, Andreas Hotz, of the FDP party, said he felt there was much scepticism there about crypto-currencies. “Neither I, nor anyone in my circle, has invested in digital currencies at all,” he said.

Hotz went on to mention how, towards the end of the Nineties, the software firm Fantastic was hailed by its founders as the next Microsoft, in its heyday employing a staff of 300 in nine countries and valued at CHF 10 billion on the stock exchange. Yet no-one bought its products and many investors lost money; the bubble had burst. Another example cited was that of the European Kings Club, which ran so-called snowball investment scheme, and which collapsed in the middle of the Nineties. It is felt that this is the fate which could be awaiting Bitcoin, as foreseen by Agustin Carstens, the general manager of the Bank for International Settlements. He thought there was a strong case for issuing new rules to clamp down severely on the use of virtual currencies before they gained mainstream acceptance. “While perhaps intended as an alternative payment system with no government involvement, they have become the combination of a bubble, a Ponzo scheme and an environmental disaster,” he said at a speech in Frankfurt last Tuesday.

Not that Hotz sees everything negatively. With the exception of digital currencies, he feels blockchain has much potential for the business location of Zug, a view with which Zug cantonal parliamentarian Andreas Hürlimann of the Green Party agrees. However, he, too, felt that it was wrong for the city to accept Bitcoin as payment, not least as this could lead to great loss in the canton’s reputation, as did the courting of crypto-currency-issuing companies by the authorities. “The whole point of them is that financial transactions can be concealed,” he said. Indeed, the very the word “crypto” is a Latinised form of the Greek “kryptos” meaning “hidden” or “secret”. “Zug and Switzerland must not be allowed to be associated with terrorism, money-laundering and tax evasion in this way,” added Hürlimann. Alas, he felt that, in some way, this had already happened with a Zug firm allegedly facilitating a transfer of payment in Bitcoin to hackers, blackmailers, who had demanded money after disabling computers through malware.

Another cantonal body prepared to accept Bitcoin and Ether is the Company Register Office, where these two crypto-currencies can be used to pay for the setting up of AG and GmbH-type companies. Its head, Andreas Hess, recognised that some people may find it strange for an authority such as this to court crypto-currencies so favourably, yet he does not feel that Zug’s reputation will be damaged in any way. On the contrary, he thinks the canton will profit from it. “These days all you hear about are the negative aspects of digital currencies, and never about the new potential they offer,” he said.

Fears on the part of those perturbed by the canton’s welcoming policy towards digital currencies may be allayed when they hear that, so far, payment amounting to CHF 1,890 only has been made in this way. And so far, only 50 people have made payments in Bitcoin in relation to residents’ registry since May of 2016. According to mayor of Zug, Dolfi Müller of the SP party, a strong advocate of all Crypto Valley stands for, a number of these were young employees of start-up firms working in blockchain technology, of whom some also accept part of their salaries in digital currency. When it came to his reaction to the luring of blockchain companies to the canton, he said, in French, “I regret nothing.”